1969 (12) TMI 8 - HC - Income Tax

Court rules sale of rosewood trees as capital receipts, not agricultural income

Consolidated Coffee Estates (1943) Limited Versus Commissioner Of Agricultural Income-Tax, Mysore.

The court allowed the revision petitions, setting aside the Commissioner of Agricultural Income-tax's order. It concluded that the proceeds from the sale ... Mysore Agricultural Income Tax Act - assessee bought several coffee estates and consolidated them - amount received from sale of timber of the shade trees is a capital receipt not liable to income-tax Issues Involved:1. Whether the proceeds of sale of rosewood trees in the hands of the assessee constitute agricultural income liable to tax under the Mysore Agricultural Income-tax Act, 1957.2. Whether the said amount is a capital receipt not liable to income-tax.Issue-wise Detailed Analysis:Issue 1: Agricultural IncomeThe primary issue is whether the proceeds from the sale of rosewood trees can be classified as agricultural income under the Mysore Agricultural Income-tax Act, 1957. The term 'agricultural income' is defined in section 2(1)(a) of the Act, which includes any income derived from land used for growing commercial crops and involves agricultural activities.The court noted that the assessee's land comprised both cultivated areas and jungle areas. The receipts in question were primarily derived from the sale of rosewood trees from the jungle area, which was not under cultivation during the relevant accounting years. The court emphasized that for income to be considered agricultural, the land must be used for agricultural purposes during the accounting year.The court found that the Commissioner did not address whether the land from which the rosewood was extracted was actually used for agricultural purposes in the relevant years. Consequently, the court concluded that the proceeds from the sale of rosewood trees from non-cultivated land could not be regarded as agricultural income, as the primary condition of the land being used for agricultural purposes was not satisfied.Issue 2: Capital ReceiptThe second issue was whether the proceeds from the sale of rosewood trees constituted capital receipts, which are not liable to income-tax. The court examined whether the rosewood trees were of spontaneous growth or planted by human agency. The Commissioner had placed the burden of proof on the assessee to demonstrate that the trees were of spontaneous growth.The court reviewed evidence, including affidavits from experts, which indicated that the rosewood trees were over 150 years old and not planted in regular rows, suggesting they were of spontaneous growth. The court also referenced authoritative texts, which confirmed that rosewood trees are native to India and grow naturally in the Western Ghats, including Coorg.Given this evidence, the court concluded that the rosewood trees were not planted by human agency but were of spontaneous growth. Therefore, the proceeds from their sale could not be considered agricultural income as defined under the Act.Further, the court considered whether the receipts from the sale of rosewood trees were capital in nature. It noted that shade trees in coffee plantations are essential for the protection and growth of coffee bushes and are considered part of the fixed assets of the planter. The court referenced the Supreme Court's decision in State of Kerala v. Karimthruvi Tea Estate Ltd., which held that the sale proceeds of shade trees in tea estates were capital receipts.Applying this principle, the court held that the rosewood trees, maintained as shade trees, were part of the capital assets of the assessee. Therefore, the proceeds from their sale were capital receipts and not taxable as income.Conclusion:The court allowed the revision petitions, setting aside the order of the Commissioner of Agricultural Income-tax. The court concluded that the proceeds from the sale of rosewood trees were not agricultural income and were capital receipts, thus not liable to income-tax. The respondent was ordered to pay the costs of the petitioner.